NEW YORK–The “low-doc” loan, one of the infamous culprits contributing to the mortgage crisis, could be making a comeback if some Wall Street firms get their way. But in this case while income documentation may be once again be minimal, borrowers must still be able to show good credit.
The Wall Street Journal reported that big money managers that include Neuberger Berman, Pacific Investment Management Co. and an affiliate of Blackstone Group LP are all lobbying lenders to make more of the so-called “Alt-A” loans—or even buying loan-origination companies to control more of the supply themselves.
“Years of easy-money policies by central banks and ultralow interest rates are pushing investors to seek out riskier assets with higher yields, such as these Alt-A loans,” The Wall Street Journal reported. “Many of these loans come with interest rates as high as 8%, compared with an average of about 3.8% for a typical 30-year fixed-rate mortgage. While such relatively high rates for Alt-A loans are attractive to investors, they have proved prohibitive to many would-be borrowers.”
The Wall Street Journal said banks have for the most part avoided the market, which has put medium-size lenders at the “forefront of making these mortgages.”
The Journal added that almost none of the Alt-A loans are being sliced and packaged into securities. “Instead, private-equity firms, hedge funds and mutual-fund companies are playing a larger role as buyers, placing the loans into private funds that are sold to institutional investors and wealthy clients,” the Journal reported.
The new low-doc mortgages require borrowers to show good credit and substantial assets or income, even if they can’t produce verification of annual wages, the Wall Street Journal said.